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Speaker 1

00:00

Today is Thursday, which usually means that Adora or myself sit up here with someone notable and have a hopefully interesting conversation. The someone notable we have today is Andy Bromberg, my friend and the president of CoinList, the president and co-founder of CoinList, which is this really fascinating company that is doing some interesting things we'll talk about. But Andy, maybe we can start by you talking a little bit about your entrepreneurial background, because interestingly, even though you graduated from Stanford a couple years ago, CoinList isn't your first venture, is it?

Speaker 2

00:45

No, that's right. So first of all, thank you for having me and thank you everyone for coming This is gonna be a lot of fun The entrepreneurial background for me started even before school in high school It's 1 of those people that started some web design and marketing businesses nothing really notable but I think it was really valuable to get that initial experience of building something and hiring a team and managing a team and firing people and figuring out how to do all that. Did you

Speaker 1

01:05

do all those things while you were in high school?

Speaker 2

01:07

I did, yeah. I got started. It was a lot of fun

Speaker 3

01:09

doing that.

Speaker 1

01:10

What made you do that? What was it about being an entrepreneur that attracted you while you were still in high school. God, in high school, I was worried about other things.

Speaker 2

01:20

It was really nothing about being an entrepreneur and more about not wanting to do other jobs that I was able to do when I was in high school. You know, you can sit there and you can do whatever, serve pizza or scoop ice cream or whatever it is.

Speaker 1

01:33

I worked in a supermarket. Yeah.

Speaker 2

01:35

It was awesome. I did the scooping ice cream too. Yeah, it was fun, but I was looking at it and saying, like all these businesses in my town have awful websites and I've got a bunch of friends that do this stuff in their spare time

Speaker 4

01:45

And that seems like just a way better way to make a little bit

Speaker 2

01:47

of money while I'm in high school than serving pizza. And so I went and did that and expanded out to videos, marketing photos, all that stuff. Ran a few websites.

Speaker 2

01:55

I did pretty well. But it was really less of I want to be an entrepreneur and more of I really don't want to do these other jobs. And it then developed into a love for building things from the ground up and trying to create. But at the time, it was purely an alternative, not a primary.

Speaker 1

02:11

So did you – so you really weren't thinking of this as like I'm an entrepreneur and I'm going to – like my family's been entrepreneurs forever. It was more an escape, an alternate route from sort of the normal high school, I'm going to get some maybe not so interesting job and do something more interesting. And probably you made a lot more money doing it too.

Speaker 2

02:35

Yeah, absolutely. And I think, and not to fall into some of the immediate kind of startup cliches, but I was doing stuff that I really enjoyed doing. I was hanging out with my friends and building things, which was really fun.

Speaker 2

02:45

I enjoyed that. We built a bunch of websites around just things that we liked. And it wasn't necessarily that we're looking at it and saying, you know, I'm going to analyze this opportunity and do my TAM calculation and figure out this and the business strategy. We just said, I love playing soccer.

Speaker 2

02:58

What if I made a website that reviewed soccer cleats? We're like, all right, let's do that. And we made 1 of those. It did really well.

Speaker 2

03:03

I like messing around with computers. Let's build 1 around how to dig into the internals of a Mac and do things with it. Let's build that. That did pretty well.

Speaker 2

03:11

And it was really based on these things that we just enjoyed doing, we had figured out how to do, and wanted to build these sites around our passions.

Speaker 1

03:17

I'm intrigued. So this was going pretty well. You're probably a senior in high school.

Speaker 1

03:23

You get into a little school on the West Coast. Did you ever have the thought, like, I'm not going to Stanford, I'm going to just, I'm going to, like, I am the next whatever, Mark Zuckerberg, I'm going.

Speaker 2

03:39

Yeah, I don't, I think those really truly would have been kind of delusions of grandeur at that point. They were, these were like little things, they were fun, and they made money, and I, you know, covered my expenses and was able to do what I wanted to do. But none of these were going to be massive businesses.

Speaker 2

03:51

And sure, of course, the thought occurs, you're like, I could just keep doing this. I'm surviving on this. This would be fun. But ultimately, I got a great opportunity to go to a great school and decided to do that.

Speaker 2

04:01

And continued to do them for a little while while I was there and did some of that stuff, but kind of trailed off during the couple years I was there and then eventually kind of tailed off completely.

Speaker 1

04:10

But the idea of starting companies didn't because apparently the bug hit you again while you were at Stanford, right?

Speaker 2

04:18

Yeah, that's right. So I was there for a couple years, had a lot of fun. Really actually the most impactful bit there was tied into this whole entrepreneurship thing, which is I took this amazing class when I was there called Startup Engineering from a guy named Baljit Srinivasan who's now the CTO of Coinbase and formerly the CEO of Earn.com and formerly a partner at Andreessen Horowitz and founder of Council.

Speaker 2

04:39

Amazing guy who actually lectured at the very first ever startup school. And he taught this class about, you know, I think a lot of times university classes around entrepreneurship don't teach you the real skills you need to start a business. They might teach you some really high level things or really basic fundamentals, but nothing around the pragmatic steps. And he set out to build a class much like this 1 that said, no, if you're actually going to do this, what do you need to do?

Speaker 2

05:07

It was a lot of time with guest lecturers coming to the class. It was a lot of time with things like it was a computer science class. How do you deploy code? How do you do revision control on code?

Speaker 2

05:18

How do you put it on GitHub? And how do you do these different things? The practical pieces. And we took this class, a bunch of us, and had an amazing time.

Speaker 2

05:24

And actually out of that, which we'll come full circle back to this, a small set of folks that were in that class ended up founding the Stanford Bitcoin Group back in 2012, 2013.

Speaker 1

05:34

I hope they bought some Bitcoin.

Speaker 2

05:35

Not enough, never enough. But yeah, so he convinced us all, you know, this Bitcoin thing is going to be real. At the time, we're looking at him and saying, no way, man.

Speaker 2

05:44

I mean, this is 2012. We're like, Bitcoin is magic internet money. I don't believe you for a second, this doesn't work. And he said, come on, let's do it.

Speaker 2

05:51

And so we started the Stanford Bitcoin Group and spent a couple years in school doing a lot of awesome research and evangelism and had a lot of fun running around, teaching people about crypto and building things or researching things. But then, yeah, ultimately I did end up leaving to start a different company and left even that behind.

Speaker 1

06:08

Well, so that different company was Sidewire, which interestingly seems like it's more relevant today, maybe more than Bitcoin, because it was all about like, real news, right?

Speaker 2

06:23

Yeah. So I built this platform called Sidewire. And I, I left school in 2014 to start this company. And I left early because I found what I think is the perfect partner for it.

Speaker 2

06:33

My co-founder Tucker, who had a background in politics, and I had this background in computer science and building things. And we came together to build this product that was a platform where the experts in politics could chat publicly about the news of the day, and everyone else could read and engage, but not participate on that same level. We wanted to build Twitter without the noise. What if you took just the experts and put them in conversation with each other?

Speaker 2

06:55

And we did this really around the 2016 election. It was 2014 to, we ended up winding it down last year in 2017, but it's really-

Speaker 1

07:01

it sounds like we need it really badly.

Speaker 2

07:04

I think we still do. And I, you know, I talked to a lot of people that are building similar products, trying to separate out the signal from the noise. And hopefully some of you in here or online are working to do that, too, because I think it's such a critical problem.

Speaker 2

07:15

Turns out very hard problem for a variety of reasons, but I think it's critical that someone solve it.

Speaker 1

07:20

So, maybe for the benefit of these folks, and never fear, we will talk about crypto. Talk a little bit, if you would, about the process of starting the company. You left school to do it and the winding down, like what happened?

Speaker 1

07:45

And maybe if there's some lessons learned in there from that experience.

Speaker 2

07:50

Yeah, absolutely. So the starting was really, it always is kind of the best part when you have this germ of an idea and you're trying to turn it into something. And so we started, Tucker and I met and started talking, we were introduced by a mutual friend named Adam while I was still in school.

Speaker 2

08:04

And we started talking about this concept that there's this crazy noise level in the discourse today, especially around politics and other topics. We separate that out with a lot of different ideas around how to do it and iterate it through a million different things. And ultimately, he was working at that time a great job. I was in school, we're looking at it, as I'm sure many people are, saying this is a big leap to take to go from very comfortable situations.

Speaker 2

08:27

I had a couple years left of school. He was again doing great at work, to make this leap. And so we said, all right, we got to a place where 9 months in of kind of casual discussions, we were both working and learning, we said we think we know what we want to do here. Timing was great.

Speaker 2

08:45

We're looking at this, this is right before summer 2014, so we know we've got some lead time up into the elections to build stuff and then launch into the election cycle. We thought we knew what we wanted to build, and so we said, all right, well, we need to get some validation for this before we get going, which was just the state of mind that we were in. I don't think this is always true for entrepreneurs by any means. But our state was, we're both in great positions.

Speaker 2

09:07

This is going to be really hard. Let's get some validation. So we went out and said, we're going to raise some money. And if we can successfully raise that money, let's go and do it.

Speaker 2

09:15

And the commitment kind of was that if we could do that before the summer, I would go obviously over my summer and work on it full time and then beyond and he would leave the job and go and we'd do it together. And so we were able to put together that money and get that validation and start building.

Speaker 1

09:32

Did you raise from angels then?

Speaker 2

09:34

Yeah, almost entirely from angels, yeah. And we had an amazing set of investors. Lesson learned, and thankfully we didn't learn it in the negative way.

Speaker 2

09:43

Having great investors is such a boon throughout the business when things are going well and when things are going poorly. We'll get to the wind down, but even that part, having an amazing set of investors that were aligned with us, cared about us as people, and were supportive of what we were doing was so critical at that point. And really digging in on what their motivations were was really important. See, we raised from a lot of people.

Speaker 2

10:01

We had, I forget the exact number now, but something like 44 investors in our seed round or something like that.

Speaker 4

10:09

Do

Speaker 1

10:09

you ever think that maybe that was too many?

Speaker 2

10:12

Yes and no. The only time I ever genuinely thought that was too many.

Speaker 1

10:15

Because you never really want to turn down money, right?

Speaker 2

10:16

Too many, yeah. The only time I genuinely thought that was too many was when I was dealing with needing all of them to sign things. But generally, again, it goes back to the quality of the investors.

Speaker 2

10:26

They were supportive and not annoying and never nagged us. We sent out our monthly updates and made sure they were informed and it was never a problem. It was just sending out 44 docusigns is a lot of docusigns to send out.

Speaker 1

10:39

But outside of that, it was good. You could imagine 1 issue with 40 or 50 or 60 investors is that even if you really try to only get high quality investors, the probability that 1 or 2 of those are difficult gets pretty high.

Speaker 2

10:56

Absolutely. And of course, even within that set of 44, there was a spectrum of people ranging from absolutely perfect to slightly less perfect. But on the whole, it was a really great set, and we were fortunate to be supported by them. And so we ended up doing that, and the short story on the company is, we built for about a year, and then we kind of raised the last part of that round.

Speaker 2

11:15

It was all 1 big round, but raised the last part of that round from Spark Capital, who were amazing investors, highly recommend working with them. And they kind of completed our institutional seed round. And then we launched the product and ran it for a couple years and ultimately wound it down last summer, yeah, 2017, mid-2017, I think. From a product perspective.

Speaker 1

11:37

Just before you get there.

Speaker 3

11:38

So you went all the

Speaker 1

11:39

way through the 2016 presidential cycle. Did you guys have any insight more than the rest of us about what was going to happen in November 2016 based on the expert discussions that were taking place?

Speaker 4

11:52

Adam Draper

Speaker 2

11:52

Things I can say and things I can't say. But yeah, we were talking

Speaker 4

11:55

to a lot of smart people. Paul Jay Say the things

Speaker 1

11:56

you can't say.

Speaker 4

11:56

Adam Draper

Speaker 2

11:57

That's a good 1. Yeah, there's a lot of… Paul Jay That's exactly

Speaker 4

12:00

what happened. Adam Draper That was exactly what happened. Paul Jay

Speaker 2

12:01

Unexpected results. Adam Draper There's a lot of smart people out there. And this ties into what Sidewire was able to do, but also kind of who we were talking to.

Speaker 2

12:11

We got this amazing set of experts on the platform engaging like crazy. About 1,000 people, senators, presidential candidates, reporters, analysts, staffers, all the people you'd want to have talking, the really smart voices, the smart commentators, having these amazing discussions going back and forth, firing back and forth, being entertaining. And we felt like that side, because it was a marketplace, right, you had supply of content and demand of content. No 1 was paying.

Speaker 2

12:37

But supply and demand. We crushed the supply. And just no matter what we did, we couldn't get people to pay attention to it, which we thought was so interesting. So our thesis going in, and I think a lot of the time startups are about having a thesis and testing it, but a thesis we felt really strongly about, it wasn't so far as build it and they will come, but we thought this is a marketplace, a two-sided marketplace.

Speaker 2

12:58

If we can get the supply, if we can get smart people to have smart conversations about the news of the day, then we will be able to get people that show up to stick around and keep engaging with those conversations and reading them. No matter what we did, and there's no way to know what the issue was, we could not get people to come and stick around. And people would show up and read 1 conversation and then would not come back. And I think at the end of the day, what we felt like was in that space, people, it's hard to get people to care about the smart conversations.

Speaker 2

13:27

People say that's what they're looking for and it might not actually be what drives them and what they actually want.

Speaker 1

13:33

They want 140 or 280 characters of sensational tweets.

Speaker 2

13:37

Yeah, yeah. And I hope that that's not true, and I hope that we had issues with the product that were deeper than that or something like that that caused it to not be effective in retaining users. But at the end of the day, we had a really tough time, even given just a stream of crazy high-quality content from the best people in the world on these topics.

Speaker 2

13:55

Tough to get those people to stick around.

Speaker 1

13:56

Okay, so this is a tough question for any startup to answer, which is, at some point you decided it wasn't an issue of tweaks. It wasn't an issue of being able to find product market fit. You could pivot 10 degrees, 20 degrees, 180 degrees.

Speaker 1

14:17

It wasn't going to happen and you wound the company down. How did you guys come to that decision?

Speaker 2

14:21

Yeah, so we did try a couple other related, but more than 10 or 20 degree tweaks, but related topics, you know, a subscription service we tried for a little bit, and pitch some enterprise-related things. Ultimately, we decided that what we were looking at, the possibilities we were looking at, even if they succeeded, couldn't be venture-scale businesses that we needed to be betting on. And These are conversations we had with our investors, super honest, transparent conversations with them, with our team, with each other.

Speaker 2

14:50

And we said, all right, well, our core business that we've envisioned and been working on for 2, 3 years, don't think that one's going to work, at least without some crazy change in how people are thinking, or us having some insane insight of fixing something that's terribly broken. These other businesses we're looking at, other business lines, there's a possibility, but these aren't the type of returns that we're looking for, our investors are looking for when we started this business. And so at that point we said, all right, instead of trying to keep this thing on life support, let's wind it down and move to our next thing and keep building from there. And it was a decision that everyone was incredibly supportive of.

Speaker 2

15:26

Again, this goes right back to the good investor thing. It is easy for people to give you a lot of grief when you make a decision like that. But we were incredibly fortunate to have an amazing set of investors that supported us in that.

Speaker 1

15:35

OK, last question on Sidewire. Do you think if you could have persuaded President Trump to call you fake news, you might have been able to survive?

Speaker 2

15:45

You know, we've talked about that a lot. I don't think so. It's so bizarre.

Speaker 2

15:52

And we could talk for hours about this. But people would show up and engage. And then they'd just kind of disappear. They'd be like, oh, this just doesn't, it doesn't do it for me.

Speaker 2

16:03

And we'd talk to people and they'd say, yeah, oh, it's great, like the content's really good. I just, I would never like, you know, go and read a ton there or like really pick it up. And you know, there's not a lot of people out there that pick up the New York Times every day and read it cover to cover. And that's effectively the same type of person that we were looking for, someone that cared about that

Speaker 4

16:19

level of discourse.

Speaker 1

16:19

You have to somehow make it a habit. This is true for any startup. You have to somehow create enough value so that you get integrated into people's lives.

Speaker 1

16:30

And it's hard to do that with news.

Speaker 2

16:31

And I do think like the, you alluded to the like, people want 140 or 280 characters of crazy stuff. Sure, there's an element of that that is, people want the crazy things that just spew up fake news this, fake news that, whatever it is. But the other piece of that is that it's easiest to create a habit with something that's bite-sized.

Speaker 2

16:48

And what we were asking people to do was read a real conversation. It was kind of like an iMessage format, like people were going back and forth and having these back and forth conversations. That's not bite-sized. It takes you a few minutes to read, if not longer, to read these really engaging ones.

Speaker 2

17:00

And they're smart people saying smart things. You've got to think about what they're saying. And jumping from not engaging with a service to engaging with a long conversation you have to read is a big jump to make. And so I think, to your point, building habits is so crucial, and habits are easiest started with something very small that might eventually expand to something big and think about how much time many people spend on Facebook.

Speaker 2

17:21

But it often starts with something really small there to build that habit. Facebook has great things around, you sign up, connect with 10 friends. They've got these numbers, if you need

Speaker 3

17:30

to do this, you need to

Speaker 2

17:30

do that. It's all easy, it's all limited time, and then the habit starts getting grained and you can build it out bigger from there.

Speaker 1

17:37

Okay, so let's transition to talk about Andy Bromberg phase 2.5, where you went back a little bit to, I won't say your crypto roots, but back to some of the work you'd been doing earlier at Stanford and got involved with, I guess, Naval and AngelList and eventually CoinList. How did that transpire?

Speaker 2

18:06

Brian Turner Yeah, so even to take a step further back than that, when I left school in 2014, I was crazy interested in crypto. I was spending a ton of time on it with the Stand for Bitcoin group, my friends, and people in the industry. And the reason I didn't feel comfortable doing anything in crypto at that time was because of a secular issue for me, which was, at that point, 2014, I couldn't make a decision.

Speaker 2

18:26

I thought it was a coin flip, whether or not there was going to be 1 cryptocurrency forever, if Bitcoin was going to be it and that was going to be the end of it, or if there were going to be a ton of cryptocurrencies out there. And I was looking at it and saying, startups, high failure rate already. Do I want to add a 50% coin flip to that? Because anything I could think of betting on relied on 1 of those 2 outcomes.

Speaker 2

18:47

And I said, I don't want to add 50% more to an already high attrition rate, so I'm going to not do this for now. By the time I came back, end of last year, middle

Speaker 1

18:54

of last year. Paul Friedman

Speaker 2

18:57

That's another way to look at it. But yeah, double your chance of failure is not a good 1 to take off. And so, 2017, I'm looking at it and saying, I'm now a believer there's going to be at least more than 1, who knows how many, successful cryptocurrencies in the long run.

Speaker 2

19:13

We can talk more about what that number might be and how we should think about that. But I feel comfortable going back to the space now. And the story with CoinList is that CoinList started about a year ago, just over a year ago. We just celebrated our internal one-year anniversary.

Speaker 2

19:27

And it was created as a collaboration between Protocol Labs, proud Y Combinator company, and an AngelList to run Protocol Labs token sale for their product Filecoin, for their token Filecoin.

Speaker 1

19:38

And I think that you have to unpack that a little bit because I was trying to think about how hopefully a lot of the people here and out there have understand cryptocurrencies and there's lots and lots and lots and lots that's been written and said about them, but maybe we can sort of very briefly outline what a cryptocurrency is, what a token sale is, what a token is, and why you might be selling them. Yeah,

Speaker 2

20:08

yeah, we've got 3 more hours, everyone. Yeah, so, you know, I think at its core, yeah, exactly. At its core, a token is a scarce digital asset.

Speaker 2

20:18

We'll talk more about what each of these things mean. A scarce digital asset that represents ownership most commonly of a token network. So the idea here is that when you launch a token network, it goes out and no 1 then controls it. So Bitcoin, as a lot of you know, was created by the pseudonym Satoshi Nakamoto.

Speaker 2

20:35

I don't know if that's a he or a she or a single person or a group of people. No 1 knows who Satoshi is. And somehow…

Speaker 1

20:43

Which is weird, right? Like this really important thing that's made and lost fortunes for people and maybe will be the basis of the future economy. No 1 knows where it came from.

Speaker 1

20:54

Weird, right?

Speaker 2

20:55

Yeah, like really let that settle. It's worth like $100 billion right now, the total market cap of Bitcoin, and no 1 knows who made it. And in fact, Satoshi has some large number of tokens socked away in a wallet somewhere that has never been used.

Speaker 2

21:09

We have billions of dollars worth of Bitcoin. We have no idea who has that, literally No idea.

Speaker 1

21:15

If anyone has it.

Speaker 2

21:16

Right. And so that is the ultimate ideal, how to think about it, that that's possible. You can launch this token network and have it go out into the world and have nobody control it, and it just happens. And so what these companies are now doing when they launch these new tokens, like Protocol Labs launching Filecoin, their intention is to build a network.

Speaker 2

21:34

Got a lot of code to write, they've got to build this thing, and they're going to put it out there into the world, and they're of course going to continue to support it as core developers of the product and improve the network, but they won't actually have control over it. The users, whoever those users may be and whatever categories they may fit into for that specific network are the ones that have control over that.

Speaker 1

21:53

Well, talk about what Protocol Labs was doing because the token that Protocol Labs, its first token that CoinList was working on was not, like you could say Bitcoin is a value in of itself. It's like a new currency, but the token for Protocol Labs was inextricably linked to a different value that was being delivered to consumers, right?

Speaker 2

22:15

Yeah. Yeah. We should talk about that. 1 other thing I want to mention, just on tokens in general, and this analogy is a little bit abused, but there's 1 reason I'd use it.

Speaker 2

22:22

I would think of tokens and blockchain technology, which powers many tokens, like the internet, for 1 really core reason. If I asked you, hey Jeff, I've got a website and here's a bunch of data about it, how do you value it? It's impossible to answer that question because if that website is nytimes.com or amazon.com or google.com or facebook.com, those are all totally different businesses. They're all built on the internet, sure, but you look at each of their revenues, they've got different multiples, how do you think about how these businesses are built?

Speaker 2

22:53

Saying how do you value a website is kind of a meaningless question. You have to know much more about the specific use case and how it's built. And in the same way, I think there's a lot of discussion, I get the question a ton from people, okay, but how do we value these tokens? And to me that's a little bit of an impossible question because tokens are built on different premises and have different applications.

Speaker 2

23:11

And you can break them down into categories and think about how to value each of those categories in the same way you could say, well how do we value a social networking website? Or how do we value a news website? Or how do we value a CPG website? But you have to think about those categories.

Speaker 2

23:24

And the idea of a token or blockchain technology is really just this kind of meta concept that allows for other things to be built on top of it. And 1 more piece of that analogy would be, I draw a similarity between the internet is infrastructure for exchanging and transacting information. It moves information around. Tokens and token networks are infrastructure for transacting or exchanging value.

Speaker 2

23:49

So for the first time, we can actually kind of programmatically exchange value in this core way.

Speaker 1

23:54

What are the strange things about the whole conversation? So Here's how I would answer your question about how to value a website. And actually is the way people have always valued things, which is, well, I would say, tell me about the cash flows that that website will generate over time.

Speaker 1

24:16

And then historically, we've figured out ways to value those things using things like net present value and all these economic concepts. But tokens seem somehow different because they don't necessarily seem to be tied to cash flows.

Speaker 2

24:33

So yes, let's talk about Filecoin, like you were saying, just as an example. And this is, again, just 1 example of many, and 1 of many categories. I'll give kind of a quick description of Filecoin and how it works.

Speaker 2

24:43

And we can go into it more in the Q&A. So Filecoin is a token that allows for the exchange of files, storage of files. It's aiming to solve this problem of how do you store files and transact for that and build a market for storing files. If you think about the simplest solution to how would 1 build a business to solve that problem, the simplest solution probably looks something like Amazon S3.

Speaker 2

25:07

If Jeff has files that he wants to store, and I'm saying I'm gonna start a business that helps him store these files, I'm probably gonna buy a bunch of servers, and Jeff's gonna hand me files, I'm gonna put them on the servers. When he asks for them back, I'm gonna hand them back and he's gonna pay me. So that works. Big business today built like that.

Speaker 2

25:23

But it has a few problems. So 1, you've got someone that's taking fees. I'm charging on top of the storage costs for him to be able to do this. But there's also issues of things like censorship.

Speaker 2

25:32

So I now have access to his files, I can censor them, I can look at them, I can do whatever I want to them. And you're relying on a single third party not to mess anything up. So I could corrupt the files, I might have downtime and not be able to return them. And so you start to say, well, is there a better solution than this?

Speaker 2

25:48

And the first version of a better solution, I think, looks a lot like kind of the Airbnb of file storage, where you'd say, all right, well, instead, there's a whole bunch of people out there who have extra storage space in their computers.

Speaker 1

25:58

Yeah, raise your hand if you have extra storage space on your computer. You're not. Seriously, raise your hand.

Speaker 1

26:03

Come on, all of you. You all have extra space, no? Your computers are full? OK.

Speaker 2

26:09

Let's do it. We're pivoting. It would be for files.

Speaker 2

26:13

So I would say maybe, all right, Well now, Jeff, hand me your files. I'm gonna find someone out here. I'm connected to all of you. I've got software on your computers.

Speaker 2

26:19

I'm gonna put the files on your computer. And then, you know, when Jeff wants them back, I'll ask for them back. I'll take them, I'll give them to him. He'll pay me, I'll pay you.

Speaker 1

26:26

I'll pay somebody. Yeah, so these people, the few people who raise their hands, they will rent, Like Airbnb, they'll rent a piece of their storage that they're not using To the network

Speaker 2

26:34

so that so that's a good solution But it doesn't solve all the problems we talked about it does first of all make it a little bit cheaper most likely Because this is kind of latent storage space. It's cheaper than buying new servers, but still there's a middleman right? There's an intermediary me who could go down.

Speaker 2

26:48

I could have downtime. I could censor the files. Again, I could look at them. So you're still trusting someone.

Speaker 2

26:54

So Filecoin, Protocol Labs building Filecoin and the underlying thing called IPFS, the Interplanetary File System, which is the coolest name for a file system ever, said is there a way to solve this? Can we connect Jeff directly to people out here who have extra storage space with no trusted intermediary? That's the problem that Filecoin is trying to solve. They build this token for a few reasons.

Speaker 2

27:16

1, Filecoin is used as the mechanism of payment. So Jeff pays you to store his files with Filecoin. But there's a couple interesting problems we have to solve. First of all, what if 1 of you does something bad?

Speaker 2

27:28

You corrupt his files, you lose them, you don't return them fast enough. So the first step of the solution is to make each of you that is storing his files for him already have Filecoin. So if you have extra storage space, you already have to have Filecoin and you do what's called staking. You take those tokens and you put them up effectively in escrow.

Speaker 2

27:47

And you say, here, I'm putting my own tokens up, I'm putting something at stake, and if I get caught doing something wrong, if I don't return his files fast enough, if I don't return them at all, then I lose my tokens. So you are disincentivized from doing something bad to Jeff's files. That's interesting, step number 1. You run into the second problem, which is, who's the judge of that?

Speaker 2

28:08

If we're not trusting a central intermediary, how do we know if you are not storing the files well, or corrupting them, or how do we know if you're not returning them fast enough? And that's where step 2 of this really interesting solution comes into play, which is that there's a massive network outside of this room, thousands of people, of what they call verifiers. And I'm gonna oversimplify what they do a little bit because they have this crazy thing called proof of space time over the top. We could talk for hours about it.

Speaker 2

28:31

But a simple solution for how to make sure that each of you is storing his files correctly is that a thousand different people come to Jeff and they each say to Jeff, hey Jeff, what's the 46th letter of your file? What's the 127th letter of your file? What's the 196th letter of your file? And Jeff says, it's J, A, and K, right?

Speaker 2

28:50

And they go to each person that's storing the files and they ask that exact same question. That person who asked about the 47th letter says, hey, what's the 47th letter of the file you're storing? You answer that J. And they check A, K.

Speaker 2

29:00

And now all of a sudden, when enough verifiers do that, we can say with confidence that the person storing the files for Jeff Is doing so correctly and at that point the network says great job everyone Jeff pays you for storing his files you get your staked tokens back Jeff gets his files if he wants them. And the verifiers get rewarded by effectively mining. New tokens are minted by the network and given to the verifiers for doing that work.

Speaker 1

29:24

Which makes the supply of coins expand over time. Exactly.

Speaker 2

29:28

And so then you have this market where each of these 3 parties, the person with the files, the person with the storage space and these verifiers, are all incentivized to do the right thing, disincentivized from doing the wrong thing, and there is no trusted intermediary, and you avoid all those problems I cited with the S3 example at the beginning. And that really gets to the core of what this all is, and I'll stop rambling in a second here, but blockchains and tokens are about incentive alignment. It's about this question of how can you build a trustless system, a system where no party has to trust any other party in a system without anyone being involved in managing that.

Speaker 2

30:03

And the way to do that is to properly incentivize everyone and build these economic systems that allow for that interaction to happen.

Speaker 1

30:11

And I think that's 1 of the best articulations I've heard of what the blockchain-based tokens are about, incentive alignment. But they're about 1 more thing, isn't it true that they're also about removing, aligning the incentives of the folks in the network so that you can remove the central authority, so that you can remove Amazon in the S2 case or the United States government, the Fed, in the Bitcoin case, right? Peter Kramer Right.

Speaker 2

30:42

And that's for any number of reasons. And that goes back to, It could be for pricing reasons. It could be that the middleman is charging fees that are unreasonable.

Speaker 2

30:49

It could be for censorship reasons. The middleman is censoring. It could be for fear of surveillance. It could be for any number of reasons.

Speaker 2

30:54

But ultimately, the most common and effective use of these blockchain systems is to, yes, remove that middleman and make it so that this trustless system can exist just between the counterparties that need to be involved in a transaction.

Speaker 1

31:04

That's kind of the ultimate, ultimately democratic version of networking, right?

Speaker 2

31:11

Markets for everything, yeah.

Speaker 1

31:15

So everyone out here in startup school world might be asking themselves, cool crypto, cool tokens, what does that have to do with me? What does this have to do with startups? And you know, we, you and I have talked a bit about the history of investing, And we've come to this place where tokens are in fact an important component of how startups raise money and exist.

Speaker 1

31:39

Maybe you can talk a little bit about this evolution to where, to ICOs, initial coin offerings and the role Coinless is playing.

Speaker 2

31:47

Yeah, so probably a little bit of an unusual perspective here. Coinless, we run token sales. We make money when people work with us to run their token sales.

Speaker 2

31:57

That's great. I think today, token sales are a good idea for an incredibly, incredibly, incredibly small number of companies. I think of the 27,000, is that right, companies in startup school? There may be a few where it's a really good idea for a token to exist.

Speaker 2

32:14

Not all 27,000 today. There are cases I can make for in the future and making sense for a broader set But today, I think it's a very small number just give you a data point on that coin list. We've existed for about a year We've publicly worked with 5 token sales in the last year We have had inbound people asking us to work with them, more than 2,500 token sales. And that's not a bandwidth issue.